Troubled state firm 1Malaysia Development Berhad (1MDB) has agreed to sell its energy unit to a power company from China in a roughly RM18 billion (S$6 billion) deal, in a move that would delete a third of its total debts.
China General Nuclear Power Corporation (CGN) will pay in cash RM9.83 billion to Edra Global Energy and take over some RM8 billion of the Malaysian company's liabilities under an agreement announced yesterday.
The deal should bring some cheer to Prime Minister Najib Razak as 1MDB's debts of RM42 billion have caused him massive political headaches including calls to resign.
The Edra deal was announced just an hour after Datuk Seri Najib, who heads 1MDB's advisory board, concluded a bilateral meeting with visiting Chinese Premier Li Keqiang.
1MDB, set up in 2009 as the country's "strategic investor", has struggled in the past year to meet its debt obligations. This has led to a rationalisation of its assets, including plans to sell off its prime landbanks in Kuala Lumpur and financial assets held overseas.
Edra controls 13 power plants in Malaysia, Bangladesh, Egypt, Pakistan and the United Arab Emirates, with combined power generation capacity of 5,594 megawatts.
That is nearly half of Singapore's total generation capacity last year of 12,521MW.
"This transaction marks the achievement of the first major milestone in the 1MDB rationalisation plan," 1MDB said of the deal.
The company, which is owned by Malaysia's Finance Ministry, called the deal "the largest announced M&A (mergers and acquisitions) transaction in Malaysia and one of the largest in the Asian power sector, year to date".
1MDB group executive director Arul Kanda called the deal, set to be concluded in February next year, "a clear vote of confidence in the Malaysian economy".
He added that "CGN Group was a clear winner" of a tender process which also included other foreign bidders as well as Malaysia state utility Tenaga Nasional.
Critics have raised concerns over the potential sale of Edra to foreign owners - five of its plants are in Malaysia - saying the government's 49 per cent foreign holding limit for power companies was imposed to ensure electricity security.
The Straits Times understands that the Energy Commission, the power sector's regulatory body, is supportive of market liberalisation and opposition lawmaker Rafizi Ramli has claimed that the commission has already written to the Finance Ministry to waive the ceiling for the Edra sale.
CGN chairman He Yu said "we are extremely impressed by the highly regulated, stable and transparent independent power producer framework in Malaysia, which has given us the confidence to make a long-term investment" .
To further pare its debts, 1MDB has been working to sell parcels of land and carry out joint ventures in its two main KL landbanks.
Additionally, 1MDB in May did a deal with Abu Dhabi's International Petroleum Investment Company to assume some RM16 billion of the Malaysian company's debts in return for a transfer of assets.